Life Insurance Cheat Sheet

Transcription

1 Life Insurance Cheat Sheet Which of the following is true regarding the policy summary? The policy summary is part of the insurance application The policy summary must be a separate document The policy summary is part of the policy s basic illustration The policy summary is attached to the buyer s guide How many people are required to form a fraternal benefit society? At least 10 Nevada citizens are required to form a fraternal benefit society. Any of the following transactions will be subject to federal income tax consequences in a Modified Endowment Contract (MEC) EXCEPT: Policy withdrawals Policy Loans Partial withdrawals Death proceeds Death benefits are the only payment not effected by the federal law regarding modified endowment contracts. An application consists of all of the following Except: Part I, the applicant s statements Part IV, the insurer's report Part III, the agent s report Part II, the insured health information, including medical exam if required The complete application will have three parts as listed above. There is no Part IV.

2 Which of the following best describes when the policy summary must be provided to the applicant of a life insurance policy? Upon policy delivery Prior to giving the sales presentation to the applicant Prior to accepting the applicant s initial premium Upon policy issuance An insurer or producer must provide a policy summary to the applicant prior to accepting the applicant s initial premium. An underwriter has reviewed the information submitted on a prospective customer. He has determined that this person will not qualify for a standard issue policy. The underwriter may choose any of the following actions EXCEPT: Charge a higher premium than for the standard risk Decline the risk outright Attach a rider that excludes coverage for specific conditions Issue the policy with a probationary period allowing the company to cancel the policy at a later date at their option. Issuing a policy under these conditions would be the same as offering insurance at the company s whim. This would give the company the right to cancel the policy if a claim occurred. Insurance regulators frown on this kind of arrangement. Janet and John have a convertible term life policy. Which of the following is true about this type of policy? The policy cannot be converted to a permanent policy without providing proof of insurability. The premiums on the new/converted policy will be higher than the premiums on the original policy. The premium will be based on the age of the insured when the policy was issued. All of the above A convertible term policy can be converted without proof of insurability. The premiums are higher, but the insured is now older. The premiums are based on the attained age of the insured.

3 Another type of term insurance is called decreasing term. As the name suggests, the amount of the insurance decreases over time. All of the following statements are true about decreasing term EXCEPT: Decreasing term is useful for people wishing to purchase life insurance for an investment. Decreasing term policies are sometimes convertible Decreasing term is often used to protect (i.e. pay off) a mortgage if the insured dies. When the policy period expires, the term insurance is worth 0-. Because the policy is worth 0- at the end of the policy period, it is not a type of insurance that would be considered useful for someone looking to fund an investment. Ashley wants to purchase term insurance that will allow her to renew at the end of the period and have a lower premium than is offered with conventional renewals. This type of policy is called: Indeterminate premium term Reentry term Convertible term Interim term Ashley can renew her term life policy at the end of the policy period by providing evidence of insurability. Normal renewals do not require proof of insurability consequently the reentry term premiums are lower. Annuities have many uses one of which is to help liquidate an estate. What type of annuity is also likely to provide a death benefit? Deferred annuity Immediate annuity Fixed annuity Variable annuity Which of the following is a characteristic of an annuity certain, that is different from a life annuity? The annuity certain provides payments for a specified period. The annuity certain provides payments for the duration of the annuitant s life. The annuity certain ceases upon the death of the annuitant. All of the above

4 Janice has a flexible premium payment annuity. Which of the following is a disadvantage of the flexible premium annuity compared to the level premium annuity? The purchaser can make premium payments annually. Premiums can be made over time. The premium payment amounts can vary. The amount of the annuity benefit cannot be guaranteed. Adjustable is a type of life insurance combines features of term and whole life coverage. Combining the features gives policyholders options to change their policies as their needs change over time. Which of the following is not a true statement about adjustable life insurance? The length of time that premiums are paid cannot be changed. The face amount of the policy can be increased or decreased The premium amount can be increased or decreased The length of time that protection is in force can be changed. Straight whole life insurance is an insurance policy with level contributions that lasts a lifetime. These policies (contracts) offer a cash value designed to be a reserve that would build up against the known claim the death benefit. Which of the following statements is not true about a straight whole life policy? The cash value goes to the beneficiary upon the death of the insured. The policies credit guaranteed interest to the cash value account. The cash value would equal the death benefit upon maturity. The insured can borrow the cash value while he/she is alive. The cash value is surrendered to the insurer upon the death of the insured and the beneficiary would receive the death benefit. Premium concepts for insurance include, which is the net premium with loading. Net single premium Standard premium Gross single premium Gross annual premium Net single premium includes mortality and interest. Gross single premium is the net premium with loading. Gross annual premium is the net premium, with loading, for one year.

5 An insurance consultant is an individual or company who, for a fee, advises or counsels anyone as to his insurance needs and coverage under any insurance policy or contract. Which of the following is true about insurance consultants? Insurance consultants are not licensed agents or brokers Insurance consultants are not licensed attorneys, actuaries, or certified public accountants. Insurance consultants may not pay or receive commissions to or from an individual required to be licensed who is not licensed. All of the above All of the statements are true about insurance consultants. All of the following are considered limited lines in Nevada EXCEPT: Travel & baggage Portable electronics Crop Surety Surety is not a limited license. Crop, Travel and baggage, Rental Car agency, and Portable electronic are considered limited lines. Mr. Jenkins wants to rollover the funds in one IRA to another qualified plan. He must be careful to do the rollover within or pay a tax of. 30 days, 10% 10 working days, 5% 45 days, 15% 60 days, 20%

6 Randy is a very healthy guy. He is a hot air balloon pilot and races jet boats for a hobby. His job involves high risk as well because he is involved the roofing business. How will his hobbies and his employment affect his ability to purchase life insurance? He will be able to purchase life insurance but his premiums will be higher He will not be able to buy insurance. Most companies will exclude him from their life insurance pools. The death benefit on his policy will exclude any accident or death that is work or hobby related. The insurer will require that he carry additional riders on his policy to compensate for the higher risk. Bobbie flies experimental aircraft. She has been a stunt pilot for nearly 15 years. How does this impact her ability to get life insurance? She could have a rider that would cover her stunt flying A policy could be written with an aviation exclusion. She is not able to get life insurance She can get insurance, but her premiums would be exorbitant Variable whole life is a policy that offers higher interest rates which help to protect the policyowner against inflation. Which of the following is not true about a variable whole life policy? Premiums are paid at regular intervals The policy cash value is not guaranteed. The death benefit can fluctuate. Policies are not regulated by the SEC Because of the risks involved, variable products are regulated by the SEC. The insurer must provide to each person insured setting forth the benefits, as well as the rights and conditions associated with the coverage. A power of attorney A certificate of insurance A benefits declaration A table of contents

7 Which of the following will trigger a taxable event in regard to a 1035 transfer? Making a policy loan Changing the ownership of a plan Repayment of a loan Changing the beneficiary What kind of group would be covered by a franchise life insurance plan? Any group Fraternal groups Groups smaller than the minimum number required by state law to cover a group of people that do not qualify for true group insurance Very large groups In order to be considered an association, a group must: Have been in existence for 2 years or more and be a natural group Have been in existence for 2 years or more and be a large group Have been in existence for 1 year or more and be a natural group Have been in existence for 1 year or more and be a large group Neighborhood Plumbing Company has decided to let their group insurance coverage that they have with Global Insurance Company terminate. Which of the following correctly states the obligations of the parties involved? Neither party is obligated to do anything. Global must notify all the individual insureds. Neighborhood Plumbing Company must notify their employees. Employees are guaranteed permanent coverage. While the insurer notifies the employer that the policy will be terminated, Neighborhood Plumbing Company must notify their employees in order to advise them of the impending termination.

8 Which of the following cannot be used to determine group benefits? Age Earnings Flat benefit Employment position The normal conversion benefit available to terminated employees under a group life insurance policy is: The employees may convert to an individual term policy within 31 days without submitting evidence of insurability. The employees may convert to an individual whole life policy within 31 days by submitting evidence of insurability. The employees may convert to an individual whole life policy within 31 days without having to submit evidence of insurability. The employees may convert to an individual term policy within 31 days by submitting evidence of insurability. If an insurance policy is cancelled, surrendered or premium payments stop, the Nonforfeiture option protects the policyowner s investment. Which of the following is a nonforfeiture option? Reduced paid up insurance Cash surrender value Extended term insurance All of the above Sylvia s agent told her that life insurance policies that build cash value have certain guarantees. The guarantees are required by law. One of the guarantees states that if the policyholder discontinues payment of premiums, the policyholder can have access to the cash value of the policy. This is called the. Nonforfeiture provision Conversion option Settlement option Policy loan provision

9 Randy is a very healthy guy. He is a hot air balloon pilot and races jet boats for a hobby. His job involves high risk as well because he is involved the roofing business. How will his hobbies and his employment affect his ability to purchase life insurance? The insurer will require that he carry additional riders on his policy to compensate for the higher risk. He will be able to purchase life insurance but his premiums will be higher He will not be able to buy insurance. Most companies will exclude him from their life insurance pools. The death benefit on his policy will exclude any accident or death that is work or hobby related. An insurance company whose main responsibility is to make money for its policyholders is called a: Health maintenance organization (HMO) Stock insurance company Preferred provider organization (PPO) Mutual insurance company The income benefits paid by an annuity are defined by the investment configuration of the annuity. is a fully guaranteed contract backed by funds in the insurer s general account. An immediate annuity A variable annuity A fixed annuity A deferred annuity Jack pays his premiums weekly to an agent who comes to his home to collect. Jack is covered by: A business life plan An industrial policy An association plan A non-participating policy An industrial policy is characterized by premiums that can be paid as often as weekly. In the past, the agent actually came to the insured s home to collect premiums. This type of policy was usually issued in small face amount, sometimes less than $1,000, and is a very expensive form of insurance.

10 Return of premium rider is sometimes thought of as a safety net for your safety net. If the insured outlives the term policy, the insurance company returns all or some of your premium payments. All of the following are considered drawbacks of this type of rider EXCEPT: The insured must hold on to the policy for the full term to receive the refund. The premiums can be 20% - 50% higher. If the insured dies, the beneficiaries receive a lump sum death benefit. Any lapse in the policy results in termination of the policy. The lump sum benefit is considered an advantage Traditional IRAs are a way for individuals especially those without employer funded retirement plans to save for retirement. All of the following are true about traditional IRAs EXCEPT: First time homebuyers can withdraw $10,000 with no tax liability Based on their adjusted gross income, some people can deduct IRA contributions. Based on their situation, some can deduct all of their contributions to their IRA Withdrawals can be made prior to age 59 ½ without penalty under some circumstances Which of the following is a CODA plan? Target benefit pension plan Group deferred annuity Money-purchase pension plan 401(k) All of the following are defined contribution plans EXCEPT: 401(k) Group deferred annuity Profit-sharing Money-purchase pension plan A group deferred annuity is a defined benefit plan.

11 Group insurance plans in which the policyowner and the insured pays the premiums are called: Fully contributory plans Non-contributory plans Payee plans Contributory plans Field underwriting is done by the agent/producer when he/she is face-to-face with the applicant, completing the application. The application contains three main parts: General information, statement of good health, premium payment General information, premium payment, agent s statement General information, medical information, producer s report General information, statement of good health, producer s report If an insured s life policy lapsed due to unpaid premiums, which of the following statements is true about conditions to reinstate a policy? Policy loans and interest are forgiven. The policy has been expired no more than 3 years On a reinstatement, the policyowner does not need to provide proof of insurability The premiums will start up again at the time of the reinstatement. Although it is not normally recommended that a minor be named as a beneficiary on a life policy, sometimes it is the only logical option. When the only logical beneficiary is a minor, all of the following options are available EXCEPT: A guardian can be appointed The insurance company can hold the proceeds until the minor comes of age. The benefits can go directly to the estate of the insured A trust can be established

12 There are two types of level term insurance, one of which is the annual renewable term (ART). The ART and. Has a requirement for proof of insurability at renewal and a maximum age Has no requirement for proof of insurability at renewal and a maximum age. Has a level face amount and level premium amount Has an increasing face amount and increasing premium amount Annual renewable term allows the insured to renew every year without providing proof of insurability. There is a maximum age for renewal, but it is not a specific age. A contract that heavily restricts one party while leaving the other free (as some standard form printed contracts), and implies inequality in bargaining power is: An aleatory contract A contract of adhesion A conditional contract A unilateral contract A Section 1035 Exchange serves what purpose? Allows for certain exchanges without recognizing gain for tax purposes. Allows for certain exchanges without recognizing loss for tax purposes. Both of the above Neither of the above Insurable interest for life insurance must exist: When death occurs At any time there is no insurable interest, the policy must be cancelled. When the policy is issued When family circumstances change

13 Universal life insurance is sometimes called the policy that allows the policyholder to buy term and invest the difference. Which of the following is not true about universal life? If paying the target premium the policy will build cash value The policyowner cannot skip premium payments The policyowner can increase the face amount The policyowner is quoted two premiums the target and the minimum. Group insurance plans for non-employer groups in which the insured pays all the premiums are called: Non-contributory plans Fully contributory plans Contributory plans Payee plans Forest has purchased life insurance policies for his daughters, ages 13 and 14. If he purchased a, in the event he becomes disabled his premiums would be waived until. Disability income benefit, he is no longer disabled and the daughters reach age 21 Term rider, he is no longer disabled and the daughters reach age 18, whichever comes first. Payor rider, he is no longer disabled and/or the daughters reach age 25, whichever occurs first. Waiver of cost insurance, he is no longer disabled and the daughters reach age 25 All of the following are defined contribution plans EXCEPT: Profit-sharing 401(k) Money-purchase pension plan Group deferred annuity

14 The Commissioner may issue licenses for limited lines of authority for all of the following EXCEPT: Domestic pet insurance for Veterinary health care Fixed annuities insurance Travel and baggage insurance Auto insurance for short-term leases In the event an agent is terminated, the insurer must notify the Commissioner of a termination of appointment within of the termination: 30 days 20 days 15 days 10 days Group life insurance is used by employers, labor unions, and associations to provide coverage for their members. Which of the following is not a characteristic of a group life policy? The premiums are based on the age of the group as a whole. States generally require an employer to have at least 10 people covered to qualify as a group. Administration of the plan, including making premium payments, is the responsibility of the policyholder. Covered group members receive a certificate of insurance. How are a revocable and irrevocable beneficiary designations similar? The policy owner can cancel the policy without consent. The policyowner can borrow without consent of the beneficiary The policy owner pays the premiums The policyowner can change the beneficiary without knowledge or consent

15 The Commissioner may revoke, suspend for up to 12 months, refuse to issue or renew, or otherwise limit any license or certificate, as well as assess an administrative fine, for any of the following reasons EXCEPT: Providing incorrect, misleading, incomplete, or materially untrue information in the license application Violating any insurance law, regulation, or order of the Commissioner. Conviction of a misdemeanor. Failure to pass the examination required by the Commissioner Group insurance plans have certain characteristics and provisions. Which of the following is a standard group insurance provision? A grace period of 30 days for nonpayment of premium A copy of the application must be provided to each insured. A certificate of insurance must be provided to each insured All of the above. The grade period on a group policy is at least 31 days. A copy of the application must be attached to the policy. Each insured must be issued a certificate of insurance. Which of the following classification of employees is not used for the purpose of determining group insurance eligibility? Age or gender Full-time or part-time/seasonal Union or non-union Salaried or hourly What is the government health insurance program that makes health insurance available to people age 65 and older? Servicemen's Group Life Insurance Medicare TRICARE Medicaid

16 All of the following are OASDI benefits EXCEPT: DIsability Medicaid Survivors Retirement Group insurance plans for non-employer groups in which the insured pays all the premiums are called: Payee plans Non-contributory plans Contributory plans Fully contributory plans Which of the following classification of employees is not used for the purpose of determining group insurance eligibility? Salaried or hourly Full-time or part-time/seasonal Union or non-union Age or gender Caroline is also considering a Roth IRA as an option to fund her retirement. All of the following are true about Roth IRAs EXCEPT: Contributions are tax deductible The withdrawals are tax-free. The contributions are the same as a traditional IRA. Contributions are limited to a person with an income less than $105,000 - $120,000. Contributions to Roth IRAs are not tax-deductible. The contributions are the same, and withdrawals are tax-free. Contributions are limited to individuals with income less than $105,000 - $120,000.

17 A contract that heavily restricts one party while leaving the other free (as some standard form printed contracts), and implies inequality in bargaining power is: A conditional contract A contract of adhesion An aleatory contract A unilateral contract A health insurance contract is a good example of a contract of adhesion. The insurance company is bound to pay the benefits outlined in the contract, but the insured may walk away at will. Qualified retirement plans need to be approved by the IRS. When an employee withdraws from a qualified plan, which of the following is true? Withdrawals are taxable income Withdrawals made prior to age 65 are not taxed. Withdrawals must be accomplished by age 75. All of the above. Some applicants want to have flexibility in their insurance policies. An adjustable life insurance policy offers the policyowner the opportunity to make changes without having to complete a new application and/or replace one policy with another. Which of the following would result in a premium increase? Converting a term policy to a whole life policy with a lesser face value Converting a term policy to a whole life policy with the same face value Converting a whole life policy to a term policy with the same face value Converting a whole life policy to a term policy with a greater face value Because term insurance is generally less expensive than whole life insurance, if the policyowner converted a term policy to a whole life policy with the same face value the premiums would increase. Although it is not normally recommended that a minor be named as a beneficiary on a life policy, sometimes it is the only logical option. When the only logical beneficiary is a minor, all of the following options are available EXCEPT: The benefits can go directly to the estate of the insured A guardian can be appointed The insurance company can hold the proceeds until the minor comes of age. A trust can be established

18 Credit life insurance is normally written on an individual basis. It is a decreasing term insurance policy that is written in connection with something that the insured has purchased. Which of the following is not a characteristic of a credit life policy? The debtor is the owner of the policy and pays the premium If the coverage exceeds the loan balance when the insured dies, the balance is paid to the estate. Credit life can never be written for an amount greater than the debt. A credit life policy is often added to the installment loan payments. On a credit life policy, the creditor is the owner and the debtor pays the premiums. Field underwriting is done by the agent/producer when he/she is face-to-face with the applicant, completing the application. The application contains three main parts: General information, statement of good health, producer s report General information, medical information, producer s report General information, premium payment, agent s statement General information, statement of good health, premium payment An equity-indexed annuity (EIA) is a fixed annuity. Which of the following is not a correct statement about equityindexed annuities? Earnings are also tied to the insurer s overall investment performance. Earnings above the guaranteed rate are linked to the stock market A securities license is required to sell EIAs The principal and interest are guaranteed. A securities license is not currently required to sell equity-indexed annuities. Timothy has a policy that provides coverage for life, but the premiums are not due beyond age 65. It has guaranteed premium, accumulates cash value and the coverage will never decrease. Timothy has purchased: An endowment at age 65 policy A limited pay life policy A variable life policy A term to age 65 policy

19 Each of the following is non-forfeiture options EXCEPT: Surrender for cash value Extended term insurance Paid up additions Reduced paid-up insurance Which of the following best describes insurable interest? The applicant for a life insurance policy financially prospers from the continued life of the insured Poorer than average risks seek out insurance coverage An insured can reasonably expect that the insurer will provide coverage as indicated in the insurance policy even if every detail regarding the coverage is not stated The applicant for a life insurance policy financially prospers from the insured s death Adjustable is a type of life insurance combines features of term and whole life coverage. Combining the features gives policyholders options to change their policies as their needs change over time. Which of the following is not a true statement about adjustable life insurance? The length of time that premiums are paid cannot be changed. The length of time that protection is in force can be changed. The face amount of the policy can be increased or decreased The premium amount can be increased or decreased Some applicants want to have flexibility in their insurance policies. An adjustable life insurance policy offers the policyowner the opportunity to make changes without having to complete a new application and/or replace one policy with another. Which of the following would result in a premium increase? Converting a whole life policy to a term policy with a greater face value Converting a term policy to a whole life policy with the same face value Converting a whole life policy to a term policy with the same face value Converting a term policy to a whole life policy with a lesser face value

20 All of the following are defined contribution plans EXCEPT: Group deferred annuity Money-purchase pension plan Profit-sharing 401(k) Life insurance policies that pay dividends to policyholders are called participating policies. All of the following are true statements about dividends EXCEPT? Dividends are paid because the insurer overcharged on premiums. Dividends are paid on an annual basis All of the above Dividends are taxable A contract that heavily restricts one party while leaving the other free (as some standard form printed contracts), and implies inequality in bargaining power is: A contract of adhesion A unilateral contract A conditional contract An aleatory contract Horace owns a health insurance policy that will not pay benefits unless he is confined to the hospital. This type of contract is known as a: Non-cancellable contract A unilateral contract A contract of adhesion A conditional contract

21 Qualified retirement plans must be for the exclusive benefit of employees and their beneficiaries. They provide tax benefits, and must be approved by the IRS. All of the following statements are true about qualified plans EXCEPT: The plan must always favor valuable employees. The plan must be in writing and communicated to employees. The plan must be permanent. The plan must have defined benefits and defined contributions A qualified plan must NOT favor highly paid executives. The Commissioner may issue licenses for limited lines of authority for all of the following EXCEPT: Domestic pet insurance for Veterinary health care Fixed annuities insurance Travel and baggage insurance Auto insurance for short-term leases A 1035 exchange is allowed on any of the following transactions EXCEPT: A whole life policy to a universal life policy A life insurance policy to an annuity An annuity to a life insurance policy A universal life policy to a whole life policy Annuities are taxed on an exclusion ratio in which the portion of annual payment that is principal is and the portion that is interest is. Tax-free, tax-free Taxed as income, tax-free Tax free, taxed as income Tax-free, tax deferred Interest is ALWAYS TAXED.

22 All of the following, if performed frequently enough to indicate a general business practice, are unfair claims settlement practices EXCEPT: Refusing to pay claims without conducting a reasonable investigation based on all available information. Delaying the payment of claims by requiring submission of preliminary claim reports and formal proof of loss that contain different information. Making claim payments not accompanied by a statement setting forth the coverage under which payments are made. Attempting to settle claims on the basis of an application that was altered without the insured's consent. A contract that heavily restricts one party while leaving the other free (as some standard form printed contracts), and implies inequality in bargaining power is: A unilateral contract A contract of adhesion An aleatory contract A conditional contract